BNY Mellon acquisition boosts alternatives business

The acquisition of PNC’s Global Investment Services business will provide a significant boost to BNY Mellon’s hedge fund administration business, according to a senior executive at the bank.

"The acquisition brings additional scale to our hedge fund services business. Once the deal closes we will be able to provide an expanded range of services to our joint clients," said Brian Ruane, CEO of the alternative investment services business at BNY Mellon.

BNY Mellon agreed to pay $2.31 billion in cash for PNC's Global Investment Services business which provides custody, fund administration and related services to hedge and mutual fund managers. The deal is expected to close in the third quarter of this year.

The acquisition adds $855 billion in assets under administration (AUA) to BNY Mellon's fund services business and bolsters its market share in the alternatives sector and in Europe.

The deal will raise BNY Mellon's alternative fund AUA to over $300 billion, making it the third largest provider of such services to hedge funds and fund of funds.

BNY Mellon already ranks as the number three provider of administration services to single manager hedge funds, with $165 billion in AUA. That will increase to around $210 billion once the deal is complete.

Fund of hedge fund (FoHF) assets will almost double from $43 billion to around $80 billion when PNC's clients are transitioned to BNY Mellon. This increase will movethe bank from tenth to third in the rankings for FoHF business.

The deal will also double BNY Mellon's alternative AUA in Europe, where PNC's franchise was particularly strong.

PNC's existing hedge fund clients will have access to an expanded list of services once the deal goes through, said Ruane. BNY Mellon plans to roll-out its hedge fund custody, foreign exchange, treasury and capital markets services to PNC's hedge fund clients. BNY Mellon also provides prime brokerage and distribution services to hedge funds through its subsidiary, Pershing.

Citco Fund Services with $346 billion AUA and State Street with $234 billion AUA currently top the rankings of hedge fund administrators, according to the ICFA alternative fund administration survey compiled in April 2009.

Josh Galper, managing principal of Finadium, a financial services consultancy, described the acquisition of the PNC unit as "a good purchase of BNY Mellon".

"PNC has been a very strong second tier player in this market. It had a number of very strong franchises and client relationships which make it an attractive acquisition from BNY Mellon's perspective," said Galper.

Ruane said the deal signified BNY Mellon's intention to expand its alternatives business. "It clearly tells the market we are committed to this business. This deal put us in third place and we aim to push forward from there," he said.

The deal is expected to close in the third quarter of 2010.

BNY Mellon currently has total assets under custody and administration of $22.3 trillion.